The New York Times today addressed the current proposal to lower taxes for corporations. The White House and the Republican controlled Congress are arguing emphatically that corporate tax rates need to be reduced because the U.S. has the highest tax rate among the seven most developed economies in the world.
Yes, they are correct that the U.S. has the highest marginal rate, but U.S. corporations do not pay the most taxes. As seen below, and as reported by the White House and the Treasury Department in 2016, U.S. companies pay the fifth highest as measured by the effective rate. If the same tax breaks and financial loopholes remain AND their maximum tax rate declines from 35% to 20% U.S. corporations will be near the bottom. Why does this matter? Because of the United States government’s current budget debt of $20,496,092,622,812. Yep, it’s a lot…mucho grando. If a plan isn’t put into action to reduce it soon it may lead to economic trouble ahead.
But, says the White House, reduced corporate taxes provide companies with much needed cash so they can invest in more workers, more equipment, more everything. On the NPR website today Jim Zarroli, asked Josh Bivens, director of research at the liberal-leaning Economic Policy Institute, if reduced corporate taxes would encourage companies to invest in people and capital. His response was: “In fact, most corporations have access to pretty much all the money they need right now… [and] we have exactly what the corporate tax cut is trying to engineer — really high post-tax profit rates. And yet it has not resulted in more investment. After a record economic expansion, companies still don't see a lot of reasons to invest out there. Giving them even more money by cutting their taxes isn't going to address the real problems the economy faces.”
Economist Kimberly Clausing agrees, "The reason firms aren't investing is because of a lack of investment opportunities, not because they need more tax incentives to do so."
In their haste to pass some form of significant legislation by year end we hope that ruling Republicans consider the current proposed tax legislation and any new loopholes that may emerge in their effort to close loopholes.
- The Berkeley Team
Occasionally we like to post articles that give you some insight into how we form our opinions or stay informed.